Israel is to follow other developed nations by introducing a carbon tax, the government announced on Monday in a statement approved by the Tax Authority and the Finance, Energy, Environmental Protection and Economy ministries.
From 2023 to 2028, a carbon tax will be applied, at slowly increasing levels, to coal, liquified petroleum gas, fuel oil, petcoke and gas, in a move expected to cover about 80 percent of Israel’s greenhouse gas emissions.
The tax will be limited, especially with relation to natural gas, to ensure that consumers — who will have to pay the tax — are protected from electricity price rises of no more than five percent during the period.
No additional carbon tax will be imposed on diesel used in transportation, because existing taxes on these fuels are already among the highest in the OECD, the statement said. However, the carbon tax element of the price will be made public.
Later on, the tax will be extended to emissions from other sources of global warming gases, such as garbage dumps, responsible for 8% of Israel’s GHG emissions, and cooling gases used in air conditioning systems, refrigerators, and refrigerated vehicles, which account for 7% of GHG emissions.
Carbon taxation, said the statement, “is intended to correct a market failure, which arises when the polluting factor does not pay for the damage caused as a result of greenhouse gas emissions. Carbon pricing is considered the most effective and efficient way to encourage the reduction of greenhouse gas emissions and create certainty in the markets.”
The tax, based on the real, so-called “external costs” of fossil fuel emissions, which include damage to public health and the environment, aims to encourage businesses and consumers to switch to fuels that contribute less to pollution and global warming and to invest in new technologies to reduce their emissions.
The statement said that a mechanism would be developed to cushion the impact of carbon taxation on weaker segments of society. It also said that steps would be taken to ease the burden on households, businesses and industry, for example via support to move to more energy efficiency.
In France, high fuel prices sparked the “yellow vest” protests in 2018, amid claims that the working and middle classes were being disproportionately affected.
Early this month, Israel submitted its targets for emissions cuts to the United Nations, in the run-up to the COP26 international climate talks planned for Glasgow, Scotland, later in the year. In the coming weeks, a multi-year program for tackling climate change and energy efficiency will be brought to the cabinet for a decision. It commits the state to slashing economy-wide net global warming gas emissions (GHG) by 27% by 2030 and 85% by 2050, relative to 2015.
Carbon taxation has been recommended by the International Monetary Fund, the World Bank and the Bank of Israel. The country will adopt the OECD’s proposal to use excise taxes, which are fixed taxes, included in a product’s price, with the aim of reducing consumption of that product. Excise taxes are also levied on tobacco and alcohol, for example.
Research by the Environmental Protection Ministry, in cooperation with the Israel Democracy Institute, indicates that carbon pricing alone will reduce greenhouse gas emissions by 67% by 2050, relative to 2015.
The study also found that imposing the carbon tax will have a negligible effect on economic growth and in fact could save some NIS 20 billion by 2050 thanks to the reduction of air pollution.